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Posts by Pras Subramanian

The pain trade. A term coined by famed stockpicker and Jeff Macke favorite Jesse Livermore. The premise being the market will do whatever creates the most pain of the most people. In that vain, Q3 was giving investors a nice ride to the upside until September 19th when stocks began sliding backwards surprising many.

Sam Stovall, veteran strategist of S&P Capital IQ notes that not only was the S&P 500 (^GSPC) was up strongly for the quarter through September 19 th , it had posted May through September returns that were the reverse of mid-term election year averages since 1945.

In the past week, however, Stovall says investors have been given a bitter reminder of why the market can be so confounding, meaning “the year in which one gives up on a reliable seasonal indicator is the year in which it will start working again.”

Around a year ago last September, the Dow Jones Industrial Average (^DJI) reshuffled the components of the index. It’s rarely done, as the committee prefers to keep the index fairly consistent over time. In this most recent move, Alcoa (AA), Bank of America (BAC) and Hewlett-Packard (HPQ) were replaced by Goldman Sachs (GS), Nike (NKE), and Visa (V).

As a disclaimer, Bank of America is a sponsor of Yahoo Finance Investing videos.

As Nick Colas of ConvergEx Group notes in the attached video, these changes haven’t exactly worked out for the Dow. While the deletions - Alcoa, Bank of America, and HP - are up 50%, 9%, and 25% year-to-date respectively, the stocks added are up only 4% (Goldman), 13% (Nike), and -5% (Visa).

Investors yearning for yield have had a tough time of it. Bond yields have been suppressed for by an ongoing bond bubble, and low rates for many years have made high-yield stocks like utilities and REITs very expensive, or overvalued compared to the rest of the market.

That doesn’t mean investors can’t find high-yielding stocks at good value. They just have to look abroad, says legendary investor and author Jim O’Shaughnessy in the attached video.

O’Shaughnessy notes that over 60% of all global dividend-paying stocks are domiciled outside the U.S. Of these international stocks, they generally offer higher yields than their U.S. brethren. Not too mention the fact that global high-dividend stocks tend to outperform U.S.-based high-dividend payers.

“[Canadian Oil Sands] has a 6.7% dividend yield, they’re relatively cheap, they’re a financially strong company with good earnings quality – those are the other things that we insist upon before we look to dividend yield,” O’Shaughnessy says.

Don't look now but stocks are peeling back a bit after a nice run-up in the beginning of September. Just like so many times earlier this year (in addition to the past five years), strategists are wondering if this is just the market taking another breather.

If you’ve bought dips in the past this year, you’ve probably enjoyed some nice returns. The bears have been seeing future capitulation in every dip, and they’ve been burned each time they’ve bet against the larger market. Josh Brown, CEO of Ritholtz Management and co-author of the book Clash of the Financial Punditssays timing the market is a fool’s errand.

“I regard market-timing and forecasting as absurd,” Brown howls in the attached video. However, if one is so inclined, Brown points out some historical trends.

U.S. Treasury Secretary Jack Lew is mad as hell, and he's not taking it anymore. The Treasury is implementing rules to limit so-called inversion deals, where U.S. companies merge with partners abroad in order to avoid paying taxes.

"This action will significantly diminish the ability of inverted companies to escape U.S. taxation," Lew said in a conference call yesterday. "For some companies considering deals, today's action will mean that inversions no longer make economic sense."

President Obama chimed in and took a swipe at Congressat the same time. "While there's no substitute for Congressional action, my Administration will act wherever we can to protect the progress the American people have worked so hard to bring about," Obama said in a statement.

As noted here, the three areas where the Treasury’s actions will have impact are:

With stocks right around all-time highs, you might think it would be difficult to find anything cheap. Surprisingly, there are some well-known names that offer some incredible value.

So says Jim O’Shaughessy, veteran stockpicker and author of books like “The New Rules of Investing Now.” OSAM determines its own ‘Value Composite,’ which uses multiple value factors, including price-to-sales; PE; EBITDA/Enterprise value; Free cash flow/Enterprise value and shareholder yield to determine the most expensive, and cheapest stocks in its stock screener.

Using this formula and back testing screener names revealed some astounding results. The Value Composite’s best decile compounded at 18.01% since 1963, better than any single value factor. Take a look at these figures:

Looking at today’s market, the Value Composite finds these are the most expensive names on the market:

Perhaps some of these names aren’t shocking for investors. On the flipside, the cheapest names according to the screener are:

Check out the video to hear O’Shaughnessy make the case for Travelers, H-P and Staples.

You've heard of bond yields and dividend yields, but have you heard of shareholder yield? In this installment of Investing 101, legendary market strategist Jim O’Shaughnessy of O’Shaughnessy Asset Management reveals what the concept is, and why it’s crucially important for investors.

Shareholder yield is a stock’s dividend yield plus its buyback yield, O’Shaughnessy says in the attached video. Looking at historical returns, it’s obvious why investors need to pay attention here. O’Shaughnessy’s research shows that between January 1, 1927 and November 30 th , 2013 the inflation-adjusted return of $10,000 invested in the top decile from his All Stocks Universe (a stock screener used by OSAM) grew to $33 million, a real average annual return of 9.77%. The top decile was compromised of the stocks with the highest shareholder yield.

However, not all stocks with high shareholder yield are created equal. O’Shaughnessy notes the spread between cheap stocks with high shareholder yield and expensive stocks with high shareholder yield is 10.2% annualized, a whopping difference.

With that said, here are three, cheap stocks with high shareholder yield that O’Shaugnessy is recommending now.

Home Depot (HD): Shares are higher despite the home improvement retailer revealing that the extent of it's past data breach compromised around 56 million cards. This amount is actually more than the number of credit cards hacked in Target's massive data theft. However, despite the breach, the company has reaffirmed its full-year revenue outlook and raised its earnings forecast.

Concur (CNQR): The cloud computing company is surging today after another buyout in the space. Concur will be bought by German software giant S-A-P for $129 per share in cash, a 20 percent premium for the maker of expense management software. The deal is worth a total of $7.3 billion, including assumed debt. SAP says Concur has 25 million users in 150 countries, and had revenues of approximately $170 million, which is dwarfed by the $5.6 billion in revenue SAP collects.

Founded in 1977 by Larry Ellison, Bob Miner and Ed Coates, Oracle (ORCL) has grown into a monster of Silicon Valley, second only to Microsoft in terms of software sales. The premier database software provider reports earnings after the bell tonight.

While CEO Larry Ellison has become fabulously wealthy from Oracle’s rise, the question for investors is whether or not Ellison has lost his touch. Shares of Oracle underperformed the market and Microsoft (MSFT) over the last 5 years. Competition from cloud services providers are taking it to Oracle too, as corporate America is shunning large data center installations for outsourcing to the Workdays (WDAY) of the world.

Najarian sees a silver lining though for shareholders. Despite it not being a growth company, he notes that Oracle is “paying out 11 or 12% to shareholders in the forms of a dividend and share buyback, and they could easily ramp that up." Najarian believes the pressure is on Oracle’s board to do just that in the near future.